Overview of Investment Banking in Hong Kong
Investment Banking in Hong Kong – If you ever want to get into investment banking in Hong Kong, then this is a guide that would help you a lot. You may have many questions about the market, about the interview process, about the eligibility criteria, and about compensation structure.
In this article, we will investigate and give you a detailed overview of all of these factors.
Have a look at the sequence of the article –
- Market Overview
- Investment Banking Services in Hong Kong
- Top Investment Banks in Hong Kong
- Recruitment Process
- Salaries of Investment Banking in Hong Kong
- Exit Opportunities
If you are new to Investment Banking, then do visit this starting point – Investment Banking
Market Overview of Investment Banking in Hong Kong
Hong Kong is the hub of investment banking in China. That’s why most of the investment bankers come to Hong Kong for building their investment banking careers.
There are two reasons behind that.
First, in recent years, there have been quite a few wealthy people who have started living in Hong Kong and they want to invest their money in the right investment funds.
Second, there’s an overlap between private banking and investment banking in Hong Kong.
As a result, all investment banks try their hearts out to win even private banking clients. The main purpose of these investment banks is to create a cluster of super-wealthy people and create an investor-pool to get assisted now and in the near future.
There are 3 top industries in Hong Kong that investment banks deal with – natural resources, real estate and construction (which are also called as “infrastructure”), and diversified consumer products.
In the near past, IPO deals were given prominence. Because many companies in China were going public and they needed assistance to get things done. But things have been changing for the better. And along with IPO deals, investment banks in Hong Kong have been closing M&A deals, and DCM (Debt Capital Market) has been on a rise.
If we look at the process of closing deals in DCM, ECM, or M&A, there isn’t much difference. But if you talk about due diligence, in Hong Kong it is huge. Due diligence is valued even more than the US and Europe.
For example, if any bank decides to do a deal with a company, first there will be a first-round of diligence where the management team, their decision-making process, the recruitment, CEO’s decisions and how they affected the company are thoroughly checked. But that’s not all. There would be a second round of due diligence even if no discrepancies were being found in the first place.
Investment Banking Services in Hong Kong
As you can see that investment banking in Hong Kong has been evolving, we can top-down a few main services investment banks in Hong Kong offers. Let’s have a look –
Debt Primary Market services:
As Basel III was implemented, banks aren’t able to provide balance sheet funding and more expensive. As a result, debt capital market and securitization have been on a rise. In the debt primary market, these services are being offered –
- Legal counsel
- Structuring advice
- Transaction execution
- Financial modeling Guides
- Attract a large pool of investors
- Liaise and negotiate with rating agencies etc.
Equity Capital Markets (ECM) services:
ECM is one of the main services offered by investment banks in Hong Kong. Let’s have a look at the gamut of services they offer under ECM –
- Equity: Under equity, they offer share placements, follow-on offerings, initial public offerings (IPOs), block tradeBlock TradeBlock Trades are securities that are bought and traded in bulk quantities by an investor, and they involve negotiations of a large number of equity and bond securities that are traded between two parties, usually with the assistance of an investment banker, at an appropriately arranged price and outside of the stock market to minimize the effect on the security's price. and share buy-back, monetization, rights issues etc.
- Structured Equity: Under structure equities, these investment banks offer hedges, embedded-equity loans, collared loans, buy-backs, forward purchases, etc.
- Equity-linked securities: Under this, the banks offer exchangeable bonds, convertible preference shares, convertible bonds, mandatory convertible and exchangeable bonds, etc.
- Hybrids: Under hybrids, there are two services these banks offer – subordinated debt offering and preference shares.
- Company listings
Project finance services:
The investment banks in Hong Kong offer few services under project financeProject FinanceProject Finance is long-term debt finance offered for large infrastructure projects depending upon their projected cash flows. Moreover, an investor has to form a Special Purpose Vehicle (SPV) to acquire the same. as well –
- Financial advisory for mezzanine debt, equity for all large projects, etc.
- Financial structuringFinancial StructuringThe financial structure refers to the sources of capital and the proportion of financing that comes from short term liabilities, short term debt, long term debt, and equity to fund the company's long term and short term working capital requirements.
- Sensitivity analysisSensitivity AnalysisSensitivity analysis is a type of analysis that is based on what-if analysis, which examines how independent factors influence the dependent aspect and predicts the outcome when an analysis is performed under certain conditions.
- Risk evaluation and mitigation of risk mitigation strategies
- Multi-tranche funding including multilateral finance and development etc.
Leveraged & acquisition of finance services:
Investment banks in Hong Kong take care of their clients by offering them the following services under leverages & acquisition finance –
- Acquisition finance
- Leveraged financeLeveraged FinanceLeveraged finance is the process by which a company raises funds through debt instruments or from outside the entity rather than through equity. It usually has a fixed periodic repayment schedule and an agreed-upon interest rate.
- Leveraged buyoutLeveraged BuyoutLBO (Leveraged Buyout) analysis helps in determining the maximum value that a financial buyer could pay for the target company and the amount of debt that needs to be raised along with financial considerations like the present and future free cash flows of the target company, equity investors required hurdle rates and interest rates, financing structure and banking agreements that lenders require.
- Management buyoutManagement BuyoutA management buyout (MBO) is a type of acquisition where the management of the company acquires the ownership of the business by increasing their equity stake or by purchasing assets and liabilities with the objective of leveraging their expertise to grow the company and drive it forward using own resources.
- Public to private finance
- CapexCapexCapex or Capital Expenditure is the expense of the company's total purchases of assets during a given period determined by adding the net increase in factory, property, equipment, and depreciation expense during a fiscal year. finance
- Mezzanine financeMezzanine FinanceMezzanine financing is a type of financing that combines the characteristics of debt and equity financing by granting lenders the right to convert their loan into equity in the event of a default (only after other senior debts are paid off).
- Bridge finance etc.
Structured trade and commodity finance services:
Under this head, banks offer the following services –
- Pre-export financing
- Documentary credits and collections
- RepoRepoA repurchase agreement or repo is a short-term borrowing for individuals who deal in government securities. Such an agreement can happen between multiple parties into three types- specialized delivery, held-in-custody repo and third-party repo. financing structure
- Import and export financing
- Currency hedging products etc..Hedging is a type of investment that works like insurance and protects you from any financial losses. Hedging is achieved by taking the opposing position in the market.
Real estate finance services:
As mentioned above, investment banks in Hong Kong invest a lot in real estate and provide solutions for infrastructure finance.
List of Top Investment Banks in Hong Kong
The following is a list of top investment banks in Hong Kong. This list is provided by Global Banking & Finance Review (GBFR) –
- Banco Santander, S.A.
- Bank of China
- Bank of East Asia
- China Construction Bank
- Citic Ka Wa Bank
- Dah Sing Bank
- DBS Bank
- Depfa Investment Bank Limited
- First Metro International Investment Company Limited
- Flemings Investment Bank
- Fortis Bank
- Fubon Bank
- Hang Seng Bank
- ICBC Asia
- Kookmin Bank
- Lank Bank of Taiwan, Co., Ltd.
- Mevas Bank
- Nanyang Commercial Bank
- Public Bank
- Royal Bank of Scotland PLC
- Shanghai Commercial Bank
- Standard Chartered Bank
- Svenska Handelsbanken
- Tai Sang Bank Limited
- Taiwan Cooperative Bank, Ltd.
- Toronto Dominion Bank
- UCO Bank
- United Commercial Bank
- Westpac Banking Corporation
- Wing Lung Bank
- Woori Bank
According to asianbankingandfinance.net, here’s a list of Top banks in Hong Kong as per the value of total assets –
- Hong Kong and Shanghai Banking Corporation (HSBC) [Value of total assets: $5.6 trillion]
- Bank of China [Value of total assets: $1.68 trillion]
- Hang Seng Bank [Value of total assets: $975 billion]
- Standard Chartered Bank [Value of total assets: $853 billion]
- The Bank of East Asia [Value of total assets: $611 billion]
- Industrial and Commercial Bank of China (ICBC) [Value of total assets: $404 billion]
- DBS Bank [Value of total assets: $279 billion]
- Nanyang Commercial Bank [Value of total assets: $239 billion]
- Wing Hang Bank [Value of total assets: $187 billion]
- CITIC Bank International [Value of total assets: $171 billion]
The recruitment process in Hong Kong is slightly different than other countries because there are few factors that controlled the whole recruitment in investment banking in Hong Kong. Let’s have a glance at these factors –
- Living in Hong Kong is imperative: You may not have heard it yet, but it’s true. If you set your eye for Hong Kong and want to build an investment banking careerInvestment Banking CareerAn investment banking personnel is a motivated professional who aims to help their clients reach their financial goals and objectives. The top four investment banking careers are - Analyst, Associate, Vice president, Managing director. in Hong Kong, you need to stay in Hong Kong. There are two reasons for that. First, staying here will allow you to learn more about the culture which will help you during interviews. And second, by staying here you would be able to network pretty well and quite intensively. So go pack your bags and find out a place to stay in Hong Kong – it can be a hostel, an Airbnb room, or a shared room with one of your friends.
- Networking is required: If you have ever heard that in Asia, you don’t need to do networking for investment banking in Hong Kong, know that it’s not the right information. Since the interviews here are very unstructured compared to the US or Europe, you need to do networking quite intensively here. Intensive networking means meeting people in person if and when it seems necessary. Only cold calling and cold emailing will not make the cut.
- Internships: These days competition is fierce and no-one is ready to leave an inch. At this time, doing internships in Investment Banking is a must. If you can do a couple, you would be better off. So don’t ever think that you will get a full-time opportunity in Hong Kong, even if you don’t have an internship experience in Hong Kong. You must do an internship that is also for at least 6 months to score well in the interview for a full-time opportunity. Try for more internships if you have time and opportunity. Your job would be to stand out as a candidate so that your chance of getting an offer is higher.
- Interviews: As mentioned above, interviews for investment banking in Hong Kong here is much more unstructured than interviews in the US or Europe. And the whole interview thing is very random here. You may need to go through 15+ interviews to get an offer or sometimes you can get early offers. The investment banking interview questionsInvestment Banking Interview QuestionsThe purpose of this Investment Banking Interview Questions and Answers is simply to help you learn about the investment banking interview topics. would include “fit” questions, “technical” questions, and “personality type” questions. You need to know Mandarin Chinese pretty well because, during the interview, they may ask you a question or two in Mandarin and also may ask you to translate an article or a news-report in Mandarin.
- Ideal Candidate: Ideal candidate is a pass out from a top-notch school in the US, the UK or Australia, and a native Chinese who would like to build a career in investment banking in Hong Kong. S/he also needs to know the native language quite well and has to complete a 6-12 month internship before trying out their fate for a full-time opportunity.
If you think that Hong Kong is an Asian country and there’s less opportunity for networking and meeting people, you’re wrong. You can meet people quite randomly if you choose. Because Hong Kong is an international hub of doing business all around the world!
From MDs to analysts, people visit similar places and hang out with each other quite often. So if you are looking for a job change or trying to network for your first full-time job, hanging out in these places may be a good idea.
Working in Hong Kong is like working in the US or in the UK. The work hours are pretty similar, but the pressure of closing deals is lesser. There will be many deals which are in the pipelines; as a result, investment bankers always don’t need to pitch for new deals.
Salaries of Investment Banking in Hong Kong
First, let’s talk about the tax rate. The tax rate is much lesser in Hong Kong than in other western countries; that means you would be able to save a lot more than other countries.
Let’s have a look at the salary structure of investment banking in Hong Kong –
If we look at the above chart, the salaries of investment banking in Hong Kong looks quite enticing. At the analyst level, you would be able to earn around HK$690,000 per annum on an average and you will also be eligible for at least a bonus of 35% which is excellent. At the MD level, your earning will have no bound and you will a huge sum of money, i.e. around HK$3,500,000 per annum plus at least 100% bonus; and this bonus can also sometime reach around 130% plus.
People leave investment banking in Hong Kong only when they get a good opportunity elsewhere. There are few exit opportunities you can consider –
- You can leave your job and can explore the buy-side at firms. You can also try out in countries like the US or the UK.
- You can take an internal transfer and go back to your home country if you’re a foreigner in Hong Kong.
- You can leave the investment banking career and start your own business.
Getting a full-time opportunity in investment banking in Hong Kong is never easy. But if you can do it, the compensation and the growth are excellent. So there’s no reason why you shouldn’t try out in Hong Kong if you want to build a lucrative career in investment banking.
This has been a guide to investment banking in Hong Kong, a List of top investment banks in Hong Kong and the services that they offer. You may also have a look at these Investment banking services in the below countries –